More on the Threat to Social Security and Medicare from the so-called "Fiscal Cliff"
by Linda Beale
More on the Threat to Social Security and Medicare from the so-called “Fiscal Cliff”
In several posts recently I have discussed the harmful demands the right is engaging in related to the so-called “fiscal cliff” created by the original Bush tax cuts (set to sunset en masse), the artificial debt ceiling (used by the GOP to exact promises of spending cuts during a recession along with extension of unneeded tax cuts for the rich), and the ill-conceived notion that the U.S. military should continue to be funded at dangerously high levels that (i) ensure that the military-industrial complex will find a war or quasi-war in which to engage their newest toys while (ii) sucking resources from public infrastructure projects and education that are vitally needed to sustain our economy. See, e.g., The GOP’s extortion demands: cut Social Security or we’ll shoot;
If the Dems got backbone;
Is it a fiscal cliff or merely a bump in the road;
We face an ‘austerity crisis’ not a ‘fiscal cliff.
A. The Explanation.
At least the national media and a slew of bloggers are beginning to provide some background information to ordinary Americans on just what is driving the national discussion of “fiscal cliffs” and “austerity” demands. See, e.g., Richard Rubin & Heidi Przybyla, Tax Pledges Confound Math as Obama Seeks Deal with Republicans, Bloomberg.com (Nov. 16, 2012) (noting that “The $607 billion fiscal cliff is the combination of tax increases and spending cuts that will take effect in January if Congress doesn’t act” and characterizing the positions of the parties as follows: “Republicans want to extend expiring tax cuts for all income levels and are demanding an overhaul in 2013 of entitlement programs and the tax code” while “Obama wants $1.6 trillion in higher taxes for top earners over the next decade, achieved through a combination of limits on breaks and higher tax rates on ordinary income, capital gains, dividends and estates”); Jackie Calmes, Demystifying the Fiscal Impasse that is Vexing Washington, New York Times (Nov. 16, 2012), at A19 (the online article is dated Nov. 15).
[A] slew of tax cuts — $400 billion for 2013 — expire on Dec. 31: All of the Bush-era rate reductions; smaller tax cuts that periodically expire for businesses and individuals; and the 2-percentage-point cut in payroll taxes that Mr. Obama pushed in 2010…. Also, 28 million taxpayers — about one in five, all middle- to upper-income — would have to pay the alternative minimum tax in 2012…. That is because Congress has failed to pass an inflation adjustment….
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An emergency unemployment-compensation program is expiring, which would save $26 billion but end payments to millions of Americans who remain jobless and have exhausted state tax benefits.
Medicare payments to doctors would be reduced 27 percent, or $11 billion, because this year Congress has not passed the usual so-called ‘doc fix’ to block the cuts….
The biggest cut would be $65 billion, enacted across the board for most federal programs over the last nine months of fiscal year 2013, from January through September. This cut, known as the sequester, was mandated by an August 2011 budget deal between [President] Obama and Congress that ended [the GOP] standoff over raising the nation’s debt limit. Demystifying the Fiscal Impasse that is Vexing Washington
It is surely accurate that our still-weak economy would do better if we do not hit it too hard with decreases in government spending–especially decreases to government spending that supports the most vulnerable amongst us who need unemployment support in order to provide the basic necessities. Similarly, it is surely true that some of the Bush tax cuts and the Obama payroll tax reduction are still vitally important to those in the lower 60% or so of the income distribution because of the slow growth in the economy. We will want to find some resolution to the situation that accommodates the need to avoid a harmful austerity approach.
So the Times’ explanation of the components of the so-called “fiscal cliff” is okay. And it is reasonable in noting that the situation is currently “vexing” to Washington. Similarly, the Bloomberg article succinctly characterizes the clear poles of the Democratic and Republican positions–a Democratic insistence on higher taxes paid by the rich, and a Republican insistence on so-called “tax reform” and spending cuts, aimed in particular at the earned benefit and safety net programs of Social Security, Medicare, and Medicaid.
B. A Grand Bargain or a Devil’s Bargain–How the Heck Did Social Security Even Get In the Picture?
Where the Times article fails is in its discussion of the “reasons” for excessive worry about the “fiscal cliff” (if one can really call the GOP recalcitrance to immediately pass an extension of at least a good portion of the Bush tax cuts for individual taxpayers in the true middle class any form of reason).
The Times article asserts that the “main disagreement” between Dems and Republicans is merely the question of extending the Bush tax rates for the top 2 percent of taxpayers. That is a considerable understatement, one that results in part from the way the media reduces complex issues to easily retained soundbites, in that it ignores the considerable disagreement about whether and to what extent there should be any changes at all to the various earned benefit programs.
The article author appears to operate on an unstated assumption that because President Obama seemed ready to trade off changes in Social Security, Medicare and Medicaid benefits for higher taxes on the very richest of the rich in August of 2011, he will still enter into such a “Grand Bargain” to avoid the so-called “fiscal cliff.” Progressives hope, at least, that Obama will not fall prey to those same conclusions: Obama is now in a position of considerable leverage, and he must recognize that he cannot allow the Democrats to be extorted into a Devil’s Bargain to reduce Social Security, Medicaid, and Medicare benefits in exchange for the pittance of slightly higher taxes on the upper crust.
The article goes even further astray at the end with its label of a “two-part deal” as the “best-case outcome”. It claims that “[m]any budget experts and economists are hoping for a two-part deal. The first part would extend many of the tax cuts and repeal the automatic spending cuts to avert the changes scheduled after Jan. 1. But it would be contingent on the second part: a framework for reducing projected long-term deficits by overhauling both the tax code–to raise revenues–and entitlement programs–chiefly Medicare and Medicaid, whose rising costs in an aging population are unsustainable.” Id.
Of course, here the “many” is simply put out there without any context, so one can’t challenge the statement as accurate or inaccurate. The right-wing has a stable of market fundamentalist economists who want to see earned benefit programs reduced, and there are certainly the Blue-Dog Dems and a number of others (like the Bowles Simpson group) who go along with that with little questioning of the ultimate negative impact on quality of life and decency of those determinations. Overall, there is considerable parroting of the right-wing rhetoric that suggests that these vitally important programs have to be overhauled, rather than recognizing that it is the factors that lead to ever-increasing costs for medical care in the United States that must be addressed. And it mistakenly suggests that there is a consensus in that regard. This is a perfect example of the way today’s journalists buy into the rhetoric that is promoted (at great expense) without questioning the fundamental presuppositions underlying it. In fact, the sequester deal did not touch Social Security, Medicare and Medicaid because there was no consensus that these programs should be reduced. And the election results demonstrate that there is no consensus now that these program benefits must be reduced, though there is likely a consensus that health care costs in this country are increasing well beyond what is reasonable. It is absolutely critical that the distinction be made.
So let’s take these issues into consideration here.
C. Thinking about the two key components of the so-called “fiscal cliff”–tax cuts and spending cuts.
1. The Bush tax cuts, job creators, and uncertainty
The right has, not unexpectedly, argued that not extending all of the tax cuts–including those that amount to significant dollars for the wealthiest upper crust–will create a dire situation since, the right argues, the wealthy are the “job creators”. There is no empirical evidence supporting the idea that tax cuts for the upper crust do anything to create jobs: most jobs are created by small businesses, and those with incomes above $250,000 make up only about 3% of small businesses.
Others argue that the uncertainty of letting the Bush tax cuts expire on December 31 is itself a dire blow to the economy. But in the same breath, the media and most members of the Democratic and Republican parties acknowledge that they do not disagree on the need to extend the tax cuts for the middle income group at this time–the Democrats because they recognize that the tax cuts are still needed at a time of continuing slow growth out of the Great Recession caused by the profligate regulatory and tax policies of the Bush years, and the GOP because they recognize that they have no opportunity for an electoral majority if they continue to ignore the middle class.
Thus, savvy political advisers note that allowing the Bush tax cuts to expire and then enacting judiciously selected tax cuts targeted at the middle class (perhaps similar to the Bush tax cuts for the lower income groups or perhaps more carefully selected and without the many corporate tax giveaways) are fairly sure things, so that the arguments from uncertainty reduce to the same-old right-wing scare tactics.
2. The sequester, military spending, health care costs, and the importance of Social Security, Medicare, and Medicaid
Some conclude that neither side wants the sequester, with its domestic spending cuts and military cost-cutting, to go into place. This, too, may be incorrect and overly simplistic.
Many progressives recognized that we have a substantial imbalance in spending, in which we neglect public infrastructure (roads, bridges, public transportation especially rail and inter-and intra-city rail) and human capital development (funding for public education and for basic research) while pushing money at the military-industrial complex. The latter step merely encourages the military to find ways to use the military investment it makes–i.e., more money essentially fosters war-mongering simply by providing plenty of the tools to carry it out through exorbitant expenditures on the military. Letting the sequester take place is probably the only way that our dysfunctional Congress–with far-right-wing/Tea Party dominance in the House and the minority-control rule through the filibuster in the Senate–will be able to undo the disastrous emphasis on military spending above everything else that began with Reaganomics.
Accordingly, a better course might be to let the sequester take hold, too, and then selectively undo cuts that jeopardize sound government–such as cuts to research, centers for disease control, public transportation, public infrastructure, education, and funding of public pension obligations. Surely the right recognizes that Americans are not happy when lax regulation results in deaths from medical care because Congress was lobbied out of regulating compounding pharmacies or deaths from bridge collapse because Congress refused to spend sufficiently on upgrading our antique transportation infrastructure or continually falling behind in research on Alzheimers and cancer and the many other modern afflictions because Congress has been so stingy with federal funds supporting basic research at our research universities.
OF course, we know from the election that today’s GOP sees no problem with cuts to various domestic programs that the Dems (and many ordinary Americans) hold dear–the right’s admitted goal since Reagan has been to reduce the size of government, on the ill-founded belief in market fundamentalism that private markets can do everything better.
But we have years of evidence that disproves that belief, and progressives must start publicizing the absurdity of the right’s claims about market fundamentalism and the right’s denials about basic scientific theory. Climate change is real, and investments will be required to protect our great cities. Social Security is not bankrupt, and there is no reason that it cannot continue for years (even indefinitely) without reducing benefits. Markets like medical care simply don’t work without governmental intervention because Big Pharma, Big Insurance, and Big Med (especially for-profit hospitals, nursing homes but also too highly compensated doctors combined with too lowly compensated aides and other assistants) exercise near-monolithic control of access and pricing, rendering the health care “market” dysfunctional, and government intervention will be required to create health-care delivery systems that serve the people.
(Even those who ascribe to Milt Friedman’s views of how markets work–views which in my view are based on unrealistic and overly simplistic assumptions that leave out most of the truth of human behavior in order to arrive at neatly mathematical formulas–recognize problems with the health care market where physicians operate in a structure of monopolistic competition. In Capitalism and Freedom, Friedman noted that state licensing acts as a barrier to entry that gives physicians considerable market control, thus resulting in rent profits. Friedman’s market fundamentalism solution would be to allow anyone to practice medicine without a license, thus creating consumer “choice.” Query whether anyone without considerable wealth would actually prefer a return to those “quack” days of frontier medicine where such a market existed or would rather have a version of today’s regulated system of health care professionals with both affordability and competence. I argue that the latter is both preferable and attainable. See below.)
The following provides some of the factual evidence for the importance of government intervention in the medical care market–European and Canadian health care, which are generally forms of government single-payer or single-payer/single-provider care, and Medicare, which is a form of government single-payer care, are both considerably less costly and substantially more universal in coverage than the standard, private market U.S. medical care model. See, e.g., the OECD’s comparative statistics on medical care provision in the US compared to OECD countries and Canada, available here (see statistical spreadsheet here).
Total Healh Care Spending Per Person, 2010: US (8233); OECD avg (3268); CA (4445)
Total Health Care Spending* as Share of GDP, 2010: US (17.6); OECD avg (9.5); CA (11.4)
Pharmaceutical Expenditure* Per Person, 2010: US (983); OECD avg (496); CA (741)
Practicing Physicians Per 1000 Population, 2010: US (2.4); OECD avg (3.1); CA (2.4)
Practicing Nurses Per 1000 Population, 2010: US (11.0); OECD avg (8.7); CA (9.3)
Physician Consultations Per Person, 2010: US (3.9); OECD (6.4); CA (5.5)
Medical Graduates Per 100000 Population, 2010: US (6.6); OECD (10.3); CA (7.2)
*expressed in dollars adjusted for purchasing power parities (rates of currency conversion that equalise the cost of a given ‘basket’ of goods and services in different countries)
The U.S. medical care market’s high costs are attributable to a variety of factors, but perhaps the most significant is the potential for “rent” profits to Big Med, Big Pharm, and Big Insurance.
Note that the right’s “reaganomics” rhetoric has been that we have to reduce the size of government by cutting government costs specifically for the social justice programs that serve a majority of our citizens, particularly in their old age. The right’s most important priority for reductions in government services, that is, are reductions to the earned benefit programs that it calls “entitlements” (a term that it does not extend to the various tax expenditures that provide all kinds of gravy for the upper crust and multinational corporations like Big Oil, Big Pharma, Big Banks, etc.). The right wants to reduce the deficit on the hides of the poor, the elderly and those who have little besides Social Security and Medicare for retirement (because of their reasonable reliance on their availability to buffer the viscisitudes of private markets in their old age). So the right proposes either privatizing (“voucherizing” Medicare; “optionalizing” Social Security) or shifting programs to the States (where reductions in Medicaid funding for the poor can be hidden more easily) and/or reducing benefits by increasing the age for eligibility and decreasing potential payments. In other words, the right treats a problem caused by the unduly high costs of a wacky, quasi-monopolistic, market-based medical care system as best solved not by bringing the costs down the way every other civilized peer nation has done, but instead by preventing the majority of Americans from having access to decent medical care if they are poor or old and dying or physically handicapped or otherwise unable to afford private insurance.
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After all, as Robert Reich argues, the “fiscal cliff” and “looming budget deficits” aren’t the worst of our problems.
The central problem of our economy is widening inequality. It’s reducing the purchasing power of the vast middle class on which job growth depends, and turning the economy into a speculative casino for multimillionaires and billionaires. It’s also undermining our ability to turn the economy around, as those millionaires and billionaires subsidize politicians who refuse to raise taxes on the wealthy and seek to cut spending critical to the middle class and the poor. Robert Reich, Stop income inequality!, Salon.com (Nov. 15, 2012) (formatting changed).
The more I think about this, the more I am convinced that, as Kenneth Thomas says, Democrats Should Just Sit Back and Ride Over the Fiscal Cliff (in a post at Middle Class Political Economist, republished on BusinessInsider.com, here) and Angry Bear here.
[The fiscal cliff] is the combination of spending cuts and tax increases set to take place on January 1 based on several different laws. Estimates of the consequences run as high as $800 billion next year, or 5.2% of the country’s$15.29 trillion gross domestic product in 2011. Yes, that would mean a recession, with obvious consequences for the middle class. But this is only true if we did nothing after January 1, and that’s not going to happen. Id.
cross posted with ataxingmatter
Linda
Just in case there are readers who haven’t heard:
There is no reason to cut Social Security at all. It has NOTHING to do with the deficits. Nor is it going broke.
SS was designed to be worker paid for very good reasons. Workers have always paid for their own Social Security, and they can continue to pay for it forever. From time to time there may be a need to raise the “tax” (really an insurance premium) when the costs of retirement go up. Current projections… the same ones that produce the “8.6 Trillion Dollar Unfunded Deficit!” … show that an increase in the payroll tax of one tenth of one percent… about eighty cents per week… per year would enable workers to pay for their own longer life expectancy at a higher real benefit for the forseeable future. The tax increase would not need to continue for more than about the next twenty years… while the expected wage increase of eight dollars per week per year would continue so that at the end of the day workers would have more than twice as much money in their pockets AFTER paying the higher tax.
The danger is that the deficit scare has largely been created in order to stampede the people into cutting Social Security, and sadly, our elected leaders have bought the con.
It is NOT an answer to call for the rich to pay for Social Security (by raising the cap)… this would just turn SS into welfare as we knew it… exactly what Roosevelt worked so hard to avoid.
Similar logic ought to apply to Medicare. While it is true that costs need to be brought down, workers can afford to pay for their own Medicare… as they do now only in part. They won’t like it at first, but by owning the program they can isolate it from the stupid politics that proposes to “fix” it by cutting it to a level where it is worthless as protection against high medical costs in old age.
coberly, obama is playing “lets make a deal” with the republicans, to get his $1.6 trillion in taxes on the rich…most assume it will be similar to obama’s proposed 2011 deal with speaker Boehner, which fell through due to tea party opposition, which included a $425 billion cut to Medicare & Medicaid, (including a $150 billion premium increase and raising the Medicare eligibility age), a change to limit social security cost of living increases, and cuts to veteran’s pensions, health care, and to education…
rjs
yep, a short time tax increase, with loopholes, in order to gut the new deal and return America to the gilded age.
it is so kind of Obama to offer to hurt the poor so the rich will feel better about the agony of tax increases.
the fact that the poor pay for Social Security themselves is not allowed into the discussion.
In fact, some of the “friends of Social Security” have a brilliant idea:
welfare has failed (been destroyed) in America. Social Security works, is the best anti poverty program we have. so lets turn Social Security into welfare.
make the rich pay for it, see. that way all the lies the Petersons tell about it will become trues.
but if the only terms you can think in are “social justice (make the rich pay)” you are unlikely to understand a program that prevents poverty by letting the poor pay for it themselves and protecting their savings from inflation and market losses by pay as you go with wage indexing.
no. that’s too hard to understand.
problem is, no one on wall street can make a profit on social security…if retirement is privatized, however…
“When will the people be educated? When they have enough bread to eat, when the rich and the government stop bribing treacherous pens and tongues to deceive them. When will this be? Never.” M. Robespierre
You see its been that way for more than 200 years and probably a lot longer. Max. distinguishes between the government and the rich. I’m not sure that distinction is valid in the current era. Even now the government and the financial elites are doing their best to destroy public education.
You might say SS has nothing to do with deficits but you can’t claim that deficits have nothing to do with SS.
If we want to win this fiscal thing, the following video might help. A lot of people are confused about deficits and the debt. Here is a serious cartoon animation that gives some clear and useful information. Put it on blast:
http://www.youtube.com/watch?v=Wd4HDautaUw
hancke,
What do deficits have to do with SS?
hancke
perhaps i am too stupid to understand your comment.
Social Security is not a cause of the deficits.
Social Security LENT money to the United States of America (these are legally separate entities.) The money has to be paid back; meanwhile it is a “debt of the United States,” owed TO the people collectively represented by the Social Security Trust Fund.
It is a legal debt and is being paid back “on time” and in a “normal” manner.
But, for what it’s worth, Social Security could continue just fine if the debt was never repaid. The current workers would need to raise their payroll tax about one percent. This would be no injustice to them as they will get the money back when they retire. Nor would it be an injustice to the Boomers who paid the “extra” tax that resulted in the Trust Fund surplus: they will get the retirement they paid for.
I don’t really mean to be mean to you, but I lose my temper from time to time at the stupidity of the arguments against Social Security. It’s the stupidity I am angry at, not the poor unsuspecting people who have been lied to and have no way of knowing what they are talking about.
i wasnt sure what he meant either, coberly…maybe some people think it’s more important to pay back foreign debt holders like china than it is to pay back our own elders…
rjs
maybe in a way it is. if you borrow a hundred dollars from your grandmother and a hundred dollars from the bank, guess who you will pay back first.
but i think the real problem with your guess is the part where you say “maybe some people think…”
they don’t.
they hear a few words they don’t understand and free associate from there in a kind of music video nightmare of looming images and complete abandonment of any cause and effect or even ankle bone connected to the thigh bone reasoning.
the worst of them, sad to say, are those who have had some “education” in finance or economics. they have been taught the stimulus and response associations by constant repetition and “yes,this will be on the test.” they are mighty proud of what they know. no need to think any further.
It is a matter of paying it back. When SS needs the money, they cash in what they need…like going to the bank.
That should be “It ISN’T a matter…”
Jerry Critter
when you deposit money in the bank, that is the same as “lending” it to the bank. when you want to be paid back you go to the bank and “withdraw” the cash.
if you think this is not true, try withdrawing what you need without “lending” it to them in the first place.
When SS buys Treasuries, it is the same as depositing the money in a bank. It is “lending” it to the government.
When SS needs to cash in the Treasuries where will that money come from? Obviously it will result in more deficit spending. I thought that was the obvious reason SS keeps getting dragged into budget discussions. Sure, SS is represented in the total debt but politicians sure run from having to up their budget to cover it. Kick the can down the road.
The key difference in your bank analogy is that unlike a bank, the government doesn’t have any money.
The treasuries that SS holds are already accounted for in the national debt. When some are cashed in, money simply transfers from one debt account to another. Net sum is zero.
The key difference between a bank and government is that government creates money.
Accounted for in the debt yes, but not in the annual budget (or semi-annual or whenever the hell budget). Doesn’t the Fed actually create money and the Treasury only prints it?
Not an SS issue.
jerry critter
i think we agree entirely.
hancke said
“When SS needs to cash in the Treasuries where will that money come from? Obviously it will result in more deficit spending. I thought that was the obvious reason SS keeps getting dragged into budget discussions. Sure, SS is represented in the total debt but politicians sure run from having to up their budget to cover it. Kick the can down the road.”
hancke,
it is not “obviously”.. the money comes from taxes, as all money to pay the governments bills comes from taxes. since the money was borrowed in the first place to reduce taxes, all you are seeing is a “delayed payment” for the things the money was borrowed to pay for. nothing unusual about any of this. people and businesses do it all the time.
if more money is borrowed in order to repay SS, that’s normal finance too. if the level of borrowing is too high (arguable) we can cut other spending or raise taxes. neither of those would hurt nearly as much as the politicians claim.
hancke said
“The key difference in your bank analogy is that unlike a bank, the government doesn’t have any money.”
this is nonsense. the government has a great deal of money. more than you can imagine. the question is what is it going to do with it? pay its bills. maintain the infrastructure that makes YOUR money possible.
or just let the country go back to the middle ages so a few men who got rich without understanding money (much, much easier than you suppose) can gloat in their greed while civilization collapses around them and they try to trade their gold for another ten minutes of life.
unlike some “liberals” i do not regard “tax the rich” as the ultimate solution to all problems. but as long as the rich have more money than they can safely use and the poor don’t have enough to live a human life, then it might be necessary to tax the rich to save both of them from their stupidity.
hancke said
“Accounted for in the debt yes, but not in the annual budget (or semi-annual or whenever the hell budget). Doesn’t the Fed actually create money and the Treasury only prints it?”
hancke
this may be true, but it sounds confused.
governments create money. so do banks. whether “dollars” are printed, or only “notes” in an account.
but money is only important in the way oil is important in your car… not the way gas is important. money is just the means by which goods and services are exchanged, which (exchange) provides the incentives to do the work to create them.
to keep the process going reasonably efficiently, the government both creates (the printing is an unimportant detail) money sufficient to the needs of the exchange, and taxes the people in order to draw enough of the goods and services produced by them into its own hands so it can create the goods and services it creates which make the rest of the process possible in material and social terms as well as financial.
none of this is very hard to understand, but you do have to get rid of all the slogans you have been taught by politicians who only want your vote,or your acquiescence, and generally don’t understand how the economy works… having been fooled by people who call themselves “economists.”
“money is just the means by which goods and services are exchanged”
True. Unfortunately, some people think the collection of money is an end in itself.
jerry
i think that’s true. but i have learned to suspect that after you make a million dollars or so, there is no way to spend that money on “pleasure.” so i think they want it for power. that would take an infinite amount, especially if you are always worried that someone will take it away from you.
worried that someone will take it away from him must be lloyd blankfein’s problem too, coberly…he’s taking a break from doing “god’s work” to tell us all we all have to work longer, cause we simply cant afford old age entitlements anymore…he’s sponsored a poll that showed most people were supporting social security cuts…
i’m sure he asked everyone in his club.
as you know i run around telling everyone it would cost an extra eighty cents per week per year.
we can’t afford that?
of course as long as the “progressive” “defenders of Social Security” keep telling us that the answer is to make the rich pay for it, the rich will certainly say, “we can’t afford it.”